Employee engagement
Cassy Aite
January 17, 2020
15 min

The 2020 Ultimate Guide to Employee Stipends

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The 2020 Ultimate Guide to Employee Stipends

Cassy Aite
August 15, 2020
The 2020 Ultimate Guide to Employee Stipends

Stipends are rising in popularity to support employees, volunteers, trainees, and other team members in a thoughtful way. But what are stipends? And why are they so valuable in shaping an appealing company culture? 

In this post, we’ve curated a ton of awesome information on stipends. You’ll find out what they are, why they work, and how to introduce stipends easily into your company. Here’s everything you need to know about stipends.

Bonus: We’ve included a 30-day free trial for up to 100+ employees to use our Stipend Management Software Tool. Get started with Hoppier for free!

Disclaimer: There are some grey areas in guidelines set by the Internal Revenue Service (IRS) definitions, so it is up to an employer to define what they consider a taxable benefit vs. a non-taxable benefit. We always suggest consulting with your finance or accounting team or tax experts for formal guidance. However, we want to be helpful, so we put this info together from what we've learned from resources published by the IRS.

What Is a Stipend? ‍

A stipend is a fixed sum of money paid to someone for fringe benefits or to offset expenses. Usually, stipends are provided for employees, but they could also work for volunteers, trainees, students, and other people who support an organization. Stipends are outside an employee’s usual pay or salary, although it's an amount of money that can create an attractive benefits package. 

Think of a stipend as an allowance, bursary, or scholarship fund with a fixed amount. For example, you might give your employees a $150 monthly stipend to support them with the costs of working remotely. You could also have a weekly travel stipend to help employees get around the city using a service like Uber. 

Stipends aren’t a new concept. In fact, they’ve been around, in one form or another, since the 15th century. The word stipend comes from Latin. It’s a combination of the two words “stips” and “pendere,” defined as “small payment” and “to pay.” 

That meaning still works well today, with many companies using stipends to provide small perks to employees. In the world of education, stipends are sometimes referred to by a different name — taxable scholarships, non-qualified scholarships, or taxable fellowships.

Different Types of Stipends

Coworkers enjoying cold beer as part of their employee stipends

You can create a stipend for almost anything. Stipends typically exist to fund work-related benefits and perks for employees. This means they’re often used to help cover commuting costs, workspaces, wellness, and professional development

The beauty of stipends is that you can tailor them to fit your company and your employees. Take dating app Hinge, for example. The company offered employees in its New York office a $200 monthly stipend to spend on dates. The app’s founder, Justin McLeod, said his favorite story of an employee using the benefit was a cat-themed date that one employee planned for their significant other. With a stipend, a team member could buy that extra bottle of wine without worrying about the added expense!

Here are some common uses for stipends:

  • Employee fringe benefits like commuting, lunches, and home office expenses
  • Health insurance and wellness programs for employees and their families
  • Professional development budgets that cover job training, courses, and learning
  • Housing stipends to cover housing expenses, cost of living, or moving to a new location
  • Fellowship stipends for medical professionals like physicians, dentists, nurses, or veterinarians that cover academic research and living costs
  • Clergy stipends for religious leaders and leaders in training to cover the cost of their living expenses including food, rent, and more
  • Research stipends or scholarships for students and researchers to cover the cost of their rent throughout their academic program — this is common with Ph.D. students
  • Per diems to cover expenses for business travel, including lodging and meals
  • Cell phone stipends for sales staff or employees traveling on business
  • Health insurance stipends for remote employees who are based in another country
  • Educational stipends that cover qualified expenses for required classes

It’s common for companies to use stipends to create or reinforce their culture or support their brand story. For example, the CEO of Molson Coors Brewing Co. noticed its beers were not on tap at all the pubs in Denver — the company’s founding headquarters. The company’s marketing team started an internal campaign called Reclaim Colorado. As part of this, each employee was given a $35 monthly stipend to buy beer for others when they were out having drinks.

What Makes Stipends Great? 

Stipends give you an effortless yet effective way to invest in your employees. These readily available funds are easy to personalize and can significantly boost employee engagement and satisfaction

Research shows that satisfied employees are between 12-22% more productive than those who are unhappy with their jobs. This means that investing more in your team can be an excellent way to improve everyone’s productivity and level of happiness. 

If your team is mostly remote, stipends offer a great way to motivate your teams and keep them happy. If they can’t make it into the office to enjoy the free snacks or play table tennis, stipends help close that gap. Team members can use their stipend to sign up for a dance class, set up fresh fruit delivery at home, or travel for a quarterly meeting. 

There are also practical benefits to using stipends. With a stipend system in place, it’s easier to make decisions about requests for funds. This is particularly helpful if you use an employee benefits platform since you can handle everything in one place. 

Let’s compare stipends to a more manual, individual approach to issuing funds for learning or development. With a stipend, you can quickly assign funds to an employee, so they can choose a course, program, or opportunity that helps them reach their goal. Without a stipend, you’d have to manually consider, process, and transfer funds for each opportunity. Stipends speed up the process and make it easier to manage. 

Along with simplifying things for you, stipends offer your employees a lot of flexibility and freedom. Instead of having to research a course and present a case for funding, they can simply use their learning stipend to pay for a course that they believe in.

It’s a good idea to set general guidelines on what your stipends should be used for, but splitting the funds into basic categories is probably enough. This freedom means your employees can personalize their experience, and it also cuts down on the administrative burden for your managers and HR team. 

How Much Should a Stipend Be?

You determine the dollar amount of your stipends. There’s a huge range in value — from a $20 coffee allowance to a $5,000 yearly professional development stipend. 

A fantastic way to set your stipend allowances is to think about the impact you’d like them to have. If you want your employees to feel supported and challenged to grow, you might set your learning stipend at $2,000 per year rather than $500. 

You’ll also want to consider your employees and their own unique needs when you set the amount of the stipend. For example, if your team mostly works remotely, consider a monthly stipend that allows them to rent a coworking space or meet with others for lunch. 

It’s also a good idea to look at the benefits of investing in your employees. For instance, if an employee with an annual salary of $60,000 can be more comfortable and 10% more productive ($60,000 x 10% = $6,000) with a $500 office chair, then it’s worth the investment. You can then use this as a basis to help you set stipend amounts for furniture, but also other areas like wellness or productivity. 

To help you find the right figure, take a look at the stipends that other leading companies offer their employees. You’ll find examples of high-budget learning stipends, affordable lunch allowances, and more creative stipends.

How Stipends Work

Stipends increase employee happiness and engagement

Stipends work by offering your employees funds that they can use for a specific purpose. Maybe it’s to support their well-being while working remotely or help them learn a new skill to support career development. With a stipend, your employee doesn’t need to go through a complicated process to get funds approved. They can simply request it, receive it, and spend it in a way that makes sense for them. 

As stipends are funds that are made available to employees, you can transfer them in similar ways. Some companies choose to do this through the payroll system on a monthly basis. This works well if you offer a monthly stipend to all employees, like a lunch allowance or gym membership. Other companies use a funds transfer to send stipends to their employees. 

The easiest way to set up and run your stipends is with a stipend management tool. From here, you can set up programs, assign stipends to employees, and let them use these funds to further their learning, support their well-being, or make progress on their goals. You can also track spending to see how your stipends are being used to help you improve your program even further.

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Who Receives a Stipend?‍

In the past, stipends were associated with people who couldn’t access a regular salary, or there was no minimum wage requirement through their work. Common recipients included clergy, researchers, interns, graduate students, graduate assistants, and apprentices. With no traditional wage, stipends offered financial support for people in these roles to fund their living costs and studies. 

Although these roles often still attract stipends, they’re no longer strictly associated with unpaid work. These days, stipends are better known as an attractive employee perk in addition to regular pay. In most cases, all team members have access to the same level of stipends, which means there’s no hierarchy, fewer disgruntled employees, and more opportunities to create a better workplace for everyone. 

Of course, there will be situations when a stipend isn’t relevant for every employee. Not everyone will need a relocation stipend or a stipend for remote working. In cases like these, think about how you can offer a similar value to all your employees, but in a personalized way.

Are Stipend Payments Taxable?

It depends. A stipend can count as taxable income, so federal taxes may need to be paid at the end of the year. This is based on fringe benefits state taxes and what the stipends are being used for. 

Stipend payments aren’t typically counted as wages, so tax withholding doesn't apply. As such, Social Security and Medicare taxes aren't withheld. Still, it's a good idea for employees to keep track of the stipends if they’re classified as taxable income.

If you use stipend management software, it’s often much easier to stay tax compliant and submit your tax return. Otherwise, be sure to learn about IRS Publication 15-B to understand how income tax and other tax implications might apply. 

Are Stipends Legal?‍

Stipends are legal when used properly in accordance with tax laws in your jurisdiction. While they’ve been used as a way to avoid compensating people properly in the past, stipends today are used as a perk alongside proper pay. Stipends should never be used as a way to exempt someone, either partially or fully, from a salaried position.

Introduce Stipends the Easy Way

Boost employee productivity with stipends

Stipends don’t have to be complicated. Organizations worldwide have used stipends and fringe benefits to motivate their teams and improve productivity, happiness, and culture.

Once you decide to make the switch and offer company stipends, we’re here to help. Our employee benefits platform makes it easy to create, manage, and analyze employee stipends. Simplify your process, save time, and give your employees more flexibility over how they learn, grow, and shape their future. To learn more, book a demo call today with one of our friendly benefit experts.

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